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Getting Quoted on OTCQX International | an Overview for Non-US Companies

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Getting Quoted on OTCQX International | an Overview for Non-US Companies White Paper Getting Quoted on OTCQX International | An Overview for Non-US Companies Over the last few years, OTCQX International, a quotation platform operated by OTC Markets Group Inc., has established significant traction in the marketplace. There are now over 300 foreign issuers with securities quoted on OTCQX International, ranging from earlier stage companies to well-known large cap issuers. OTCQX International is attractive to many foreign significantly higher quantitative standards for initial issuers because it provides them with a cost- quotation and on an ongoing basis. Otherwise, the effective way to expand their access to U.S. investors initial and ongoing requirements applicable to both and increase liquidity. OTCQX International can tiers are the same. be an upgrade for a foreign issuer that already is quoted in the United States on a “bulletin board” To be admitted to OTCQX International, an issuer quotation system, or can be used by an issuer that is must satisfy the requirements below. An issuer establishing its first U.S. trading presence. typically can establish an OTCQX International quotation in 12 weeks or less. The process can be As discussed below, a foreign issuer can obtain an significantly shorter for an issuer that already has an OTCQX International quotation without becoming over-the-counter sponsored American Depositary a U.S. reporting company, meaning that it is not Receipt (“ADR”) program. required to file periodic reports with the U.S. Securities and Exchange Commission (“SEC”) under Financial Requirements the Securities Exchange Act. It also is not required At a minimum, in order to be quoted on OTCQX to comply with the Sarbanes-Oxley Act or the International, a foreign issuer must have had US$ 2 governance requirements otherwise applicable to million in total assets at the end of its most recent companies that list on The Nasdaq Stock Market annual or quarterly fiscal period and also must have or the New York Stock Exchange. This is because satisfied one of the following thresholds for its most OTCQX International is an “inter-dealer quotation recent fiscal year: (1) US$ 2 million in revenues; system” rather than a “national securities exchange” (2) US$ 1 million in net tangible assets; (3) US$ for U.S. regulatory purposes, and because OTCQX 500,000 in net income; or (4) US$ 5 million in global International companies typically qualify for an market capitalization. exemption from reporting known as Rule 12g3-2(b) under the Securities Exchange Act. (This exemption The issuer financial requirements are greater for is discussed in greater detail below.) admission to OTCQX International Premier. As is the case for lower-tier International issuers, the issuer Requirements for Admission to OTCQX must have had US$ 2 million in total assets as of International the end of its most recent annual or quarterly fiscal There are two OTCQX tiers for foreign issuers: period. In addition, it must satisfy either of two OTCQX International and OTCQX International alternative sets of standards as of the end of its most Premier. OTCQX International Premier is for recent fiscal year. It must have had revenue of US$ larger companies and requires applicants to meet 100 million, global market capitalization of US$ 500 Getting Quoted on OTCQX International | An Overview for Non-US Companies | 1 © 2012 Schulte Roth & Zabel LLP million, aggregate cash flow for the three preceding eligibility requirements, in completing the application years of US$ 100 million and minimum cash flow in and in navigating the application process generally. In each of the two preceding years of US$ 25 million. connection with initial quotation, the PAL also must Alternatively, it must have had revenue of US$ 75 million provide a letter to OTC Markets Group confirming that and global market capitalization of US$ 750 million. the issuer is in compliance with the requirements of Rule These requirements are consistent with the analogous 12g3-2(b) and other applicable OTCQX International NYSE listing standards. requirements. Qualifying Foreign Stock Exchange Listing On an ongoing basis, the PAL provides advice An OTCQX International issuer must have been listed concerning compliance with Rule 12g3-2(b) and the on a Qualifying Foreign Stock Exchange for at least the OTCQX rules. The PAL also is required to conduct an preceding 40 days. Almost 60 markets in more than 40 annual review to confirm that the issuer is in compliance countries have been designated as Qualifying Foreign with these requirements and to provide a letter to that Stock Exchanges, as indicated on Annex A. effect to OTC Markets Group. Availability of Specified Public Information DTC Eligible Security In order to obtain an OTCQX International quotation, In order to be quoted on OTCQX International, securities a foreign issuer must either have a class of securities must be eligible for deposit with the Depository Trust registered under Section 12(g) of the Securities Company (“DTC”). DTC acts as a clearinghouse for Exchange Act, which requires it to file periodic reports settling securities trades. Securities that are deposited with the SEC, or it must be a Rule 12g3-2(b) issuer. with DTC trade book-entry, rather than through physical This White Paper describes the OTCQX International delivery. quotation process for Rule 12g3-2(b) issuers. Ordinary shares of Canadian issuers can trade directly in Rule 12g3-2(b) is an exemption from the registration and the United States, since DTC maintains a link with CDS, ongoing reporting requirements under the Securities the Canadian securities depository. The shares of most Exchange Act. Instead, a Rule 12g3-2(b) issuer must other foreign issuers indirectly trade in the United States publish electronically — either on its website or through via DTC-eligible ADRs. ADRs are issued by a depositary an electronic information delivery system generally bank. Each ADR represents one or more shares of the available to the public in its primary trading market — issuer’s stock or a fraction of a share. certain information that it makes public to shareholders under home country requirements. This information Proprietary Priced Quotations must be published in English. The Rule 12g3-2(b) The issuer must have proprietary priced quotations exemption is discussed in greater detail below. of its securities published by a U.S. market maker in OTC Link, which is an electronic inter-dealer quotation An issuer that will be relying on the Rule 12g3-2(b) system operated by OTC Markets Group that provides exemption also must electronically post through the price quotations for securities issued by OTCQX issuers. OTC Disclosure and News Service all of the information required to be made publicly available under Rule 12g3- Inclusion in a Recognized Securities Manual 2(b) for the preceding 24 months. These materials must The issuer must provide disclosure on an ongoing basis be posted within 90 days after submission of an OTCQX in a securities manual published by Standard and Poor’s International application. or Mergent (formerly known as Moody’s). In the United States, the resale of securities in secondary market Appointment of a “PAL” transactions is regulated at both the federal and state OTCQX companies are required to have a sponsor. level. By providing disclosure in a recognized securities For an OTCQX International issuer, this is known as a manual, secondary trading is automatically permitted in Principal American Liaison (“PAL”). The PAL can be a up to 38 U.S. states. Exemptions in other states usually law firm, investment bank or ADR depositary bank. In can be obtained through a fairly simple application order to serve as a PAL, an institution must complete process, although this is not required for establishing or the PAL application and approval process if it has not maintaining an OTCQX International quotation. already done so. Schulte Roth & Zabel already has completed this process and is pre-qualified to act as a The Application Process PAL for OTCQX International issuers. In order to obtain an OTCQX International quotation, the issuer must complete an OTCQX Application for Among other things, the PAL assists the issuer in International Companies. This application requires determining whether it meets OTCQX International information concerning the issuer, the securities to Getting Quoted on OTCQX International | An Overview for Non-US Companies | 2 © 2012 Schulte Roth & Zabel LLP be quoted and the issuer’s compliance with OTCQX singly or together, constitute the primary International eligibility requirements. The issuer also trading market for its securities. must enter into an OTCQX Agreement for International Companies. Among other things, this agreement To have a non-U.S. primary trading market, at provides for the designation of the issuer’s securities least 55 percent of the trading in the securities as OTCQX International securities and the usage by on a worldwide basis must have taken place the issuer of OTCQX issuer services, such as the OTC during the issuer’s most recently completed Disclosure and News Service. fiscal year in on or through the facilities of the securities markets in not more than two foreign Applicants also are required to pay an application fee of jurisdictions. If the issuer aggregates the trading US$ 5,000. of the securities in two foreign jurisdictions for purposes of the test, the trading for the Satisfying the Rule 12g3-2(b) Exemption securities in at least one of the two foreign A foreign issuer generally is required to register a jurisdictions must exceed the U.S. trading for class of securities with the SEC under the Securities the securities. There is no minimum time period Exchange Act when it has over US$ 10 million in for which securities need to be traded in the assets and the class is held by more than (1) 2,000 primary trading market to qualify for the Rule shareholders of record or 500 shareholders of record 12g3-2(b) exemption.
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